What Does FERC Do?

By Richard W. Caperton
Posted on September 10, 2013, 1:18 pm

On September 17, the Senate Committee on Energy and Natural Resources is scheduled to discuss the nomination of Ron Binz, a former Colorado state regulator, to be the new chair of the Federal Energy Regulatory Commission, or FERC. As the committee considers his nomination, it must remember FERC’s critical role in protecting consumers and strengthening our nation’s energy system and not get sidetracked by issues that are outside of FERC’s purview.

It’s easy to see why some people may be unclear about exactly what FERC does. Many have long seen the commission as a sleepy backwater of the federal bureaucracy, where the most important rulings are known by numbers—Orders 888 and 2000 are particularly notable. It’s not that FERC’s work is unimportant, just that it is complicated and—let’s be honest—a little boring. In recent years, no one has paid it much attention.

This all changed after Jon Wellinghoff, an energy attorney and former state regulator from Nevada, became chair of the commission in 2009. FERC’s mandate did not change, and the technical substance of its work remained the same, but Wellinghoff spoke eloquently and forcefully about the promises of renewable energy, the threat of climate change, and the need to start moving toward a clean energy future. All of a sudden, people were again paying attention to FERC. Four years later, the nomination of Wellinghoff’s successor—Binz, who President Barack Obama nominated on June 27—has become a lightning rod for partisan debate.

Predictably, the fossil fuel interests have come out in opposition to Binz, citing his pro-renewables statements and his work as a state regulator in shifting Colorado away from coal. Setting aside the fact that his pro-renewables sentiments are in line with the American public and that Colorado’s transition is saving consumers money, the problem here is that the attacks on Binz’s nomination are based on a misunderstanding of what FERC actually does.

FERC unfortunately—and mistakenly—bears the brunt of some of the frustrations that people have with energy regulation. Policymakers need to understand that while FERC works on many issues, its mandate is narrow and does not cover many important issues. FERC does not, for example, enforce clean air and clean water rules—that’s up to the EPA. FERC also does not tell utilities what types of energy to use or decide the price Americans pay for energy in their homes—that’s up to state public utility commissions. And FERC certainly does not force anyone to shut down a power plant that is operating within the boundaries of the law.

So what does FERC do? Simply put, FERC is charged with enforcing laws that protect consumers and ensure fair competition in electricity and natural gas markets. These are wide-ranging efforts, and while the work is often shrouded in a cloak of impenetrable legalese, the impacts are incredibly important.

For example, FERC has been in the news recently for levying very big fines against companies that manipulate electricity markets. If you thought market manipulation ended with Enron, you are unfortunately mistaken. FERC fined Barclays Bank PLC $453 million on July 16, JP Morgan $410 million on July 30, and Constellation Energy Commodities Group, Inc. $135 million in 2012, to say nothing of smaller fines such as $2.5 million to Gila River Power, LLC in 2012 and $10 million to Rumford Paper Company on March 22 of this year. FERC issued these fines because the companies manipulated power prices in a way that cheated consumers, other businesses, or both. Related to this work, FERC reviews utility mergers to make sure that they do not harm the public.

FERC also works with state and regional partners to ensure that necessary energy infrastructure gets built. Most recently, FERC issued Order 1000, which describes how electric transmission lines—critical for keeping costs down and reliability high—are planned and paid for. FERC is also in charge of siting natural gas pipelines, which are becoming critical as more utilities burn natural gas to generate power. After these infrastructure projects are built, FERC makes sure that they are operating safely.

In addition to setting the rules for how infrastructure is built and how markets operate, FERC also ensures that all electricity resources are operating on equal footing. While opponents will accuse Binz of being overly supportive of renewable energy, it is important to remember that most of FERC’s attention to clean energy is about leveling the playing field. Our nation’s regulatory system was designed when coal, natural gas, nuclear, and hydropower were the only power sources that mattered. Now, new resources such as wind and solar are competing, so FERC is updating guidelines to make sure they are competing in a fair fight. FERC is also working on setting rules so that energy efficiency and demand-side management—so-called “negawatts”—are treated fairly as they compete with traditional power generation.

In the coming weeks, the Senate will consider Binz’s nomination to be chair of FERC, and mainstream pro-consumer voices are already supporting his nomination. Mindy Lubber, president of the investor network Ceres, wrote strongly about why Binz should be confirmed. Twelve former FERC commissioners even wrote a letter to The Wall Street Journal saying, “If the Senate confirms [Binz], we think he will be a fair and impartial judge and further the public interest within the FERC’s authority.” I have also written at Climate Progress about the skills that he would bring to the job.

Rather than making these confirmation hearings a circus about things that are irrelevant to the Binz nomination, senators should focus on what FERC actually does and how Binz would help it achieve its pro-consumer mandate.

Richard W. Caperton is the Managing Director of Energy at the Center for American Progress.